Investing in real estate in Nigeria has always been an excellent way to make money. Owning property has been a sign of wealth and status for centuries. In recent years, real estate investing has become even more popular. Across the world in emerging markets like Nigeria, South Africa and Kenya: there are a variety of different opportunities to invest.
Real estate business offers great returns on investments, good tax advantages and is arguably the best way to both generate and preserve wealth. Having said this, there are a number of different ways of actually investing: each coming with its own unique advantages.
In this article we will highlight how to invest in real estate in Nigeria and some of the best types of investment opportunities on offer.
Investing in real estate through buying property
Capital is a prerequisite of investing in real estate. Depending on the real estate investment strategy of choice, the sums involved can be considerable.
Directly buying a property is the most hands on way of making money from real estate in Nigeria. The buying, holding and selling of property has made many people millionaires. It has also enabled the wealthy to safeguard their assets for future generations.
Below you will find several different methods of investing in real estate and how you can make money from each strategy. Many of these ways require little to no money, so you will be able to identify opportunities that are best suited to you.
Buying residential rental properties
Buying rental properties is a tried and tested way of real estate investing. With rental properties you can generate passive income and build wealth at the same time. Investors profit through collecting rent from tenants plus gain from property price appreciation over time.
For maximum benefit, rental properties must be sited in good locations: places where you can quickly rent your properties out to longer term tenants. This will allow you to generate a steady cash flow for an extended period of time.
Rental properties may include a combination of: flats, condos, terraces, townhouses, bungalows, duplexes etc.
House hacking is a popular strategy for investing in rental properties and is a great way for beginners to start building wealth. You simply purchase a bigger home than you need to live in and then rent out the excess rooms to tenants.
For example, you could buy a small multi-unit rental property and live in one part, while renting out other sections to tenants. In this way your tenants can be paying of your mortgage loan, reducing your expenses or providing you with extra cash. In essence you will be living “for free”.
Renting out your basement, bedroom, or other spaces in your home can all be considered house hacking. Some of the properties that you can use for house hacking include a duplex, triplex, fourplex, mobile home, garage apartment or boys quarters (BQ).
Invest in Airbnb
Airbnb rentals are a great investment opportunity for anyone seeking to make money from real estate. Airbnb has become a popular short term rental platform worldwide: as more and more travelers look for alternatives to hotels. This rise in demand means Airbnb hosts are able to increase nightly room rates. At the same time, it lowers the vacancy rate of rooms.
With Airbnb you will be renting out you properties for only a few days or weeks at a time. This gives you the option of utilizing the property for your own needs when you need to,
Investing in an Airbnb property also lets you enjoy the benefit of your property appreciating in value over time. The key here is to invest in property where there is demand for short term rental: think vacation destinations such as Abuja and Lagos in Nigeria.
Invest in vacation rentals
Investing in vacation rental properties is a good method of making money in real estate. Like an Airbnb investment property, vacation rentals can be considered short term rental properties: as they are usually only rented out for under 30 days.
A vacation rental property is one which you can use as a holiday home and also rent out: to offset some of the costs of owning the real estate. You would typically invest in this sort of property where there are busy tourist attractions and related amenities.
Fix and then flip a property
With flipping, It’s best to look for properties where there is already a strong demand, as this will make it much easier for you to sell later on. Accordingly, you need to have a decent knowledge of the local real estate market and be able to renovate cheaply: in order to make a good profit.
The quicker you buy and sell, the better, as you will be able to minimize any property maintenance costs such as insurance, taxes and mortgages payments.
Invest in land banking
Instead of leaving your money in a bank or investing in stocks, you can put you cash into land. Land is a fixed asset that is both easy to maintain and is guaranteed to appreciate in value over time.
All you need to do is buy land on the fringes of a developing city, wait for a few years and sell for a profit. Land banking in emerging markets is arguably the most profitable as they tend to have plenty of developing areas.
For instance, land is relatively cheap to buy in places like Nigeria: where there are a number of establishing cities such as Abuja.
Invest in agriculture via buying farmland
Investing in agricultural land is recommended for a number of reasons. Good farmland is becoming scarcer while at the same time the global population is steadily increasing: thus creating more demand for food.
You may decide to flip agricultural land, lease it out to a farmer or directly sell harvested produce for profit.
Farmland is generally not as expensive as more urban land, so investors with limited funds would do well to look into this opportunity. With urban expansion, in developing countries such as Nigeria, that rural agricultural land you buy now may become urban within the next 5 to 10 years!
Property development: buy land and build a house
Also known as real estate development, this involves all the processes of developing land or buildings into a higher use value.
By adding value to a property, in the form of a erecting a structure for example, you are able to profit more than if you had sold the land undeveloped. The idea of developing real estate to its maximum and best use value, underpins the property development business.
This method of investing usually requires a lot of capital; hence people often enter into joint venture partnerships: where one party has the land and another party comes in to develop it. The proceeds are then split, depending on the terms of the joint venture agreement.
Invest in commercial real estate
Buying commercial properties can be very lucrative as they tend to produce higher returns on investment, when compared to residential real estate. As this type of investment requires more expertise and money, it is often done in collaboration with other investors.
Just like residential property: commercial properties can earn money through the income produced via the buildings operation, as well as increases in the properties valuation over time. Having said this, a key difference is the fact that commercial properties typically involve longer tenant lease terms. This gives better guaranteed cash flows.
The stronger a countries economy, the greater the value of commercial real estate in it. Therefore buying commercial properties in countries with strong economic growth is recommended.
Commercial real estate may include a mix of: industrial property, warehouses, hotels, malls, hospitals, office buildings etc.
Rent to own schemes
Rent to own is a scheme under which you are able to rent a house for a certain period of time, with the option of buying it before your lease expires.
For those with less capital, but still with wishes of owning a home, rent to own may be the solution for you. This allows you to invest in a house, without the upfront mortgage commitments. Instead, a percentage of your monthly rental payments are set aside for the deposit on your mortgage (buyers equity). After which you will be entitled to buy the home outright.
With this option you need to review the rent to own contract in detail, making sure it is an appropriate way for you to invest in real estate.
Partner with other investors and experts
You can always consider working with others, particularly if you want to avoid all the “details” involved with real estate investments.
People are always on the lookout for others to partner with on deals, as financing and expertise is not always easy to come by. Further, working in partnership allows for bigger real estate deals and hence greater profits for all involved.
If you have the capital, you can come in as an equity-investor or a lender. An equity investor has a direct stake in whatever it is you are investing in, while a lender expects to be paid their money back with interest.
If you have real estate skills you may able to partner with a financial backer, allowing you to profitably invest in something that you would otherwise not have had the chance to.
There are a variety of different ways of investing in real estate in Nigeria — all with their own individual advantages.
As long as you do your research on the market you decide to invest in and have a specific investment strategy: real estate is one of the best ways of making money.
It is recommended that you look into your personal circumstances as well as your finances, before figuring out what investment opportunities may and may not work for you.
If you are looking to invest in real estate in Nigeria, particularly in Abuja, speak to us at Villa Afrika today: +234 708 500 8039.
Remember to subscribe to our newsletter below.
Abuja Real Estate Insider
Join our email list for the latest distressed deals, investment opportunities & tips.